I can confirm this - Mosaic certainly had image support. It was the first Web browser I ever saw running, in one of my old university's computing labs in the autumn of 1994, under Windows 3.1. I remember watching a photo (of U2, IIRC) slowly loading in the Mosaic window on the PC next to mine, and thinking I had to find out what this program was.
I've spent pretty much my whole working life with the Web, and that was where it all started...
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